Blue Sky series: Heather Boushey's plan

Late last week, I spoke with former SEIU president and current Georgetown fellow/fiscal commission member Andy Stern about hosting a series of pieces laying out different ideas to kick-start job creation. The idea here is not to see how many compromises can dance on the head of the congressional pin; it's to see what exactly different experts think needs to be done. In Ben Bernanke's memorable term: "blue sky thinking."

The first piece came, naturally enough, from Andy Stern; the second was from Dean Baker, and the third was from Mark Zandi. In the coming days, there'll also be pieces from Rep. Paul Ryan, Sonecon's Robert Shapiro, the Peter G. Peterson Foundation's David Walker and others. Today's comes from Heather Boushey.

Moving the U.S. economy out of first gear

Heather Boushey
Senior economist, Center for American Progress

We are now nearly a year into what economists call a recovery, but it doesn’t look like one to U.S. workers. A close look at the data shows that while the U.S. economy is no longer in reverse, it is having a hard time getting out of first gear.

The U.S. economy continues to have a significant output gap: Capacity utilization is at 75 percent -- meaning that a full quarter of our machines are sitting idle -- while 1 in 10 workers sits at home. We need to find a way to connect the workers who want to work with the idle machines, be those desktops or assembly lines. What we need is a continued injection of demand -- demand for goods and services that will put businesses into motion to start investing and hiring again.

The question now is what we should do to push demand out of first gear. There are two ways to think about the challenges ahead: what makes sense from an economic perspective and what may be politically possible. Ideally, we can find ideas that do both.

President Obama has encouraged Congress to vote on a set of growth-oriented tax cuts, which are in the “realm of the possible.” Policymakers should focus on putting money in the hands of people who will spend it given where our economy is. Extending the Bush tax cuts for the middle class, as Obama proposes, is a good idea. The middle class will continue to spend these extra funds and this will boost demand and spur economic growth. But Congress should allow the tax cuts for those earning above $250,000 to expire because they do relatively little to boost demand and our economy can ill afford ineffective economic policies.

Other good tax ideas include extending the full range of provisions in the American Recovery and Reinvestment Act that boost incomes for middle- and working-class families. These include the Making Work Pay tax cut, which gives a $400 tax cut for single filers and up to $800 for joint filers. It is implemented by reducing the amount of tax withheld from each paycheck. Other ARRA tax provisions include improvements to the Earned Income Tax Credit and expansion of the Child Tax Credit, including making it refundable.

The president also proposes allowing firms to deduct 100 percent of new equipment purchases in 2010 and 2011 rather than depreciate these expenses over time. These are the kind of policies that should garner Republican support, and pairing them with middle-class tax cuts makes good political sense. But it will probably not do much to boost demand. The fundamental problem facing firms (especially small businesses) is not enough customers. It is not the cost of investing, which is at historic lows.

These proposals are a good start. But if we want to bring unemployment down in the short to medium term, there are other bold steps we can focus on to boost demand. Andy Stern and Dean Baker have already outlined some good ideas. Here’s my “blue sky” contribution:

Invest in laying the foundation for economic growth. Congress should seriously consider Obama’s proposal to increase infrastructure spending by $50 billion to invest in roads, rails and runways (and let’s really think “blue sky” and wonder if maybe a new Congress could allocate even more).

There are two stark realities in front of us that make this a crucial step. First, the United States has been underinvesting in infrastructure, which threatens our economic competitiveness moving forward. Every U.S. business relies on our transportation networks and electricity grids to keep their operations humming. We need an upgrade. And second, it may be some time before we’re back to full employment; taking steps now to make long-term investments that will boost job creation in the years to come is smart policy.

Invest in ourselves. We should put our national service programs “on steroids” to give our youngest workers useful job experience and an opportunity to give back to their communities. Expanding our national service programs, as Stern suggested, is also an excellent way to meet pressing community needs and tap into the skills and expertise of older workers.

But there are other ways to create jobs now. For instance, Congress should extend the Temporary Assistance to Needy Families Emergency Jobs Program, which as of the end of September will have created 250,000 jobs through public-private partnerships nationwide. The Local Jobs for America Act, introduced by Rep. George Miller (D-Calif.), would create approximately 1 million jobs by providing $100 billion in funds to be used over two years to protect state and local government jobs and create local government and nonprofit sector jobs.

Do the right thing: Boost demand through unemployment benefits. At the end of November, extended benefits for the long-term unemployed will expire. The U.S. economy continues to have more long-term unemployed -- those out of work and searching for a job for at least six months -- than at any time in more than half a century.

Unemployment benefits are targeted at these workers, and we know that this is one of the most effective ways to boost demand because recipients go out and spend these benefits. So later this fall Congress should extend long-term unemployment benefits until the unemployment rate comes back down -- no ifs, ands, or buts about it. Further, the Supplemental Nutrition Assistance Program, which provides food assistance, is also an effective way to boost demand as well as help families avoid hunger and continued funding is critical.

Every dollar designated "unemployment benefits", et al., is a dollar plus interest stolen from the productive side of the economy where demand is far more likely to develop.

All the government finagling is precisely what is killing the economy. The government cannot fix what is external to it, for the instant it tries, the thing is no longer external, but becomes part of the same bloated, corrupt government morass (the face of which are the schleps, blowhards, and demogogues of Washington.)

"We should put our national service programs “on steroids” to give our youngest workers useful job experience and an opportunity to give back to their communities."

If you're getting paid, it isn't really "giving back", is it?

"Congress should seriously consider Obama’s proposal to increase infrastructure spending by $50 billion to invest in roads, rails and runways"

Do we get any assurances that this time it will all be spent on useful projects, or will we have to hear Ezra justify fixing more broken windows on empty buildings this time next year? Oh I forgot, blowing money on worthless projects is stupid nitpicking.

" Boost demand through unemployment benefits."

This is forced charity, pure and simple. While it is nice for the people receiving the money, paying people not to work does not increase production. The Research Desk here linked to a study which suggested the UI extensions increased the unemployment rate by 0.4% (and presumably GDP would have been lower proportionally).

Heather Boushey is a excellent spokesman for effective economic policy for Americans.
She is an informed and articulate "happy warrior" in America's class war between the super rich and everyone else.
Never forget that the main goal of the anti-tax, super wealthy is to sow distrust in the electorate toward their own government. For the right, corruption and incompetence in Democracy is not a "bug but a feature". All collective action, whether by unions or voters, threatens the entrenched power in this country. Democrats need to vote if we are to have any chance of defending the middle class.

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